Does your employer’s insolvency mean fast-track redundancy?

You can’t have escaped the recent turmoil in the High Street as Comet went into liquidation and then HMV, Jessops and Blockbuster entered into administration. Others may well follow.

If you work for a company that is in a dire financial position, you will be concerned not just about retaining your job, but whether you will get paid for outstanding salary and what your redundancy entitlements are.

We asked our legal expert Philip Landau where you stand if this is something that your employer is facing…

What’s the difference between employer liquidation and administration?

There is a difference between an employer being in liquidation and administration. If your employer is in liquidation, there is no continuing business and you will be out of a job. Where your employer is in administration, however, an administrator will be appointed to see if the business can be kept alive pending a transfer in whole or part to a new buyer. There are limits on making any legal claim against your employer in an insolvency situation.

The administrator who is appointed to run the company has a period of 14 days after their appointment to decide if they want to retain the company’s employees- or offload the costs of those employees by dismissing them. If you are dismissed within the 14 day period, you become an “ordinary creditor” within the administration (alongside other ordinary creditors). If the administrator retains you on the other hand, you become a “preferential creditor” where you would stand a better chance of recovering outstanding salary and redundancy payments if the company ultimately went under.

Will you still be paid in event of a fast-track redundancy?

If a buyer for the business is found, your employment rights and previous terms of contract are generally protected and transferred to the new owner under the Transfer of Undertaking (Protection from Employment) Regulations (“TUPE”). This includes your continuity of employment and any outstanding payments owed to you. There are some circumstances, however, where your contract terms can be varied by an administrator as being necessary for the survival of the business. This is deemed a “permitted variation”. You could, therefore, find yourself being forced to accept some changes to your terms of employment in relation to the transfer of the business.

If a buyer of the business cannot be found and therefore insolvency is the only option, the Insolvency Act 1986 limits what you can recover in money terms as a preferential creditor. This includes:-

  • Outstanding salary (which also includes commission) for the four-month period immediately preceding the insolvency- up to a ceiling of £800.
  • Accrued holiday pay (up to 6 weeks)
  • Certain occupational pension payments.

Any additional amount you are owed (or relating to periods longer than four months) rank as ordinary debt only along with the bulk of other creditors.

What if there are no funds to pay you?

If you find there are insufficient funds to pay you from the insolvent business, you can apply to the National Insurance Fund (“NIF”) for outstanding payments including salary, notice, holiday and redundancy pay. The NIF is operated by the Redundancy Payments Office, although the process can be complex and time consuming.

In order to qualify for NIF payments your employer must be insolvent and your employment needs to have terminated. You must also have done everything you can to get your payment, including applying in writing to your ex-employer for the payment within six months of the date your employment ended.

A claim to the NIF is also subject to ceilings. This includes a cap of £450 a week (the new limit from 1st February 2013) for unpaid salary up to a maximum of eight weeks; up to six weeks’ holiday pay to a maximum of £800; and outstanding statutory notice, up to a maximum of £450 a week. Your statutory minimum notice is one week for every year worked up to 12 weeks.

Another possible amount you could recover is a “protective award” as a result of your employer or administrator’s failure to adequately comply with minimum consultation periods where large scale redundancies are being made. The provisions start to kick in where more than 20 employees are being made redundant from any one establishment and you may need to issue proceedings in the employment tribunal to recover this award.

How soon do you have to leave your job?

Where your employer’s pending insolvency is common knowledge, you should at least have some indication of what is to come. What can often be more shocking for an individual is where you are not aware of your employer’s shaky financial position and turn up for work completely unaware. You are then given the unexpected news of your potential redundancy whilst being told at the same time that you are not required at work during the redundancy process. And yes, this does happen. Employers are actually entitled to remove you from the workplace in this way- and are more likely to do so when you have access to sensitive and confidential data as well as a heavy interaction with clients. This is common, for example, in the banking sector.

You will not be surprised to hear that almost all the staff treated in this way are ultimately made redundant. Employers often know who they want to let go before they embark on the redundancy process. An employer will still need to follow proper redundancy procedures however – which includes a selection process, consultation, and consideration of suitable alternative role. A failure to do so can amount to an unfair dismissal although you only have a time period of 3 months less one day in which to make a claim.

Being made redundant is never pleasant. It does help to be armed with your rights, however, whether your employer is insolvent or otherwise. This is the time you need them most.”

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  • Berni Albrighton

    A really good piece here and great common sense attitude to recruitment.